Blog Capital Spending

An Update on Port Authority Budget Reform

July 22, 2014

Just over one year ago, on July 16, 2013, the Citizens Budget Commission (CBC) sent the executive director of the Port Authority of New York and New Jersey (PANYNJ) a letter with recommendations for improving the Authority’s budget process, with the goals of greater transparency, long-term financial viability, and public accountability for performance. CBC drew upon its knowledge of the budget practices of other large public entities in the region to inform the following recommendations:

  • Prepare a detailed annual operating budget and four-year financial plan, both in accord with Generally Accepted Accounting Principles (GAAP).
  • Adopt an operating budget only after opportunities for public review are provided and periodically revise the budget during the fiscal year.
  • Develop a long-term strategy to guide development of a multi-year capital plan and revise the capital plan at least once every four years. The strategy should be based on professional assessment of investments needed to maintain facilities in a state of good repair and meet long-term demand trends.
  • Include with the multi-year capital plan annual and four-year commitment plans, revising these commitment plans annually. Commitment plans should specify projects to be initiated and the expected cost, as well as the sources of funding for each investment.
  • Report quarterly to the board and to the public the status of each capital project relative to scheduled milestones and planned costs. Major projects should be monitored by independent consultants.
  • Specify performance measures for each major activity and report quarterly to the board and to the public on targeted and actual performance. These measures should be incorporated in budget decision making.

What Has Happened in the Last Year?

The Port Authority responded promptly to CBC’s recommendations with a statement that many of the recommendations were already in place or underway, and a July 31, 2013 letter to CBC from the Port Authority said the agency was in the midst of finalizing its long-term capital plan and that it planned to provide a more detailed response to CBC’s recommendations.1

Since that exchange of letters PANYNJ has come under intense public scrutiny culminating in an ongoing reform of its governance. During this tumultuous period the agency has made progress in implementing CBC’s recommendations. The Authority released a 10-year capital plan and a 2014 operating budget—albeit in February, a month into the fiscal year. Both documents exhibit many of the features recommended by CBC; however, other recommendations which are vital to strengthening the Authority’s transparency and public accountability have yet to be implemented. 

Consistent with CBC recommendations, the 2014 operating budget provides detailed revenues and expenditures in accord with GAAP. It also includes the year’s capital investments by project. However, the annual operating budget is not accompanied by a detailed four-year financial plan, nor has it been subject to sufficient public review.

PANYNJ’s 10-year capital plan, which covers the years 2014 through 2023, follows many of CBC’s recommendations. It presents and follows a capital investment strategy, showing annual and five-year commitment plans, but the capital plan lacks a financing plan for each project. While the agency has generally funded a share of its capital plan with pay-as-you-go (PAYGO) sources, the board does not have a stated plan for the amount and use of PAYGO. From 2005 to 2013 PAYGO funding accounted for as little as 35 percent of total capital funding in 2012, and as much as 70 percent of capital funding in 2009.2 This wide range highlights the need for an explicit policy. Also, while the agency uses asset management practices to analyze and prioritize capital investments, the outcomes of this analysis and prioritization are not publicly available.

The agency’s Planning and Regional Development Department provides monthly reports on some performance measures including vehicle traffic, transit ridership, aviation passengers and freight, and maritime freight. However, PANYNJ has not publicly stated performance goals for all major activities. Moreover, these measures are not incorporated in the Authority’s budget documents to relate trends in volume and quality of service provided with changes to expenditures and investments.

What Comes Next?

As the Port Authority welcomes a new chairman and continues its governance reforms, the board should persist in the implementation of CBC’s budget recommendations. More accountability and oversight through increased reporting of operating and capital budgets will help ensure other reforms are successful. Adhering to CBC’s recommendations will better inform the board when making decisions on how to allocate its valuable but limited resources.

How much should the agency spend on maintaining its assets versus expanding capacity? Should profitable business lines be expected to support substantial structural deficits in others, as is the case with the Port Authority Trans-Hudson (PATH) rail transit line’s sizable deficit? Is it appropriate to use PANYNJ funds for non-core mission facilities and activities? These questions ought to be answered as part of the budget process after careful—and transparent—analysis and debate of PANYNJ’s fiscal capabilities.

This month also marks release of the first written report of the Special Panel on the Future of the Port Authority, a committee appointed by the governors of both states. While this status report is primarily concerned with the agency’s governance, the work of the panel should lead to continued progress toward full adoption of CBC’s budget recommendations for the 2015 fiscal year. Full implementation of these measures can and should go hand-in-hand with governance reforms to restore the public’s trust in this vital regional resource.

Footnotes

  1. Steve Strunsky, “Watchdog group calls for transparency in Port Authority budget,” The Star-Ledger (July 16, 2013), www.nj.com/news/index.ssf/2013/07/watchdog_group_calls_for_transparency_in_port_autority_budget.html; Patrick Foye, Executive Director, The Port Authority of New York and New Jersey, letter to Carol Kellermann, President, Citizens Budget Commission (July 31, 2013).
  2. The Port Authority of New York and New Jersey, Financial Statements and Appended Notes for the Year ended December 31, 2013 (April 2014), p. 18, www.panynj.gov/corporate-information/pdf/financial-statement-2013.pdf; 2012 edition, p.17, www.panynj.gov/corporate-information/pdf/financial-statement-2012.pdf; 2011 edition, p. 15, www.panynj.gov/corporate-information/pdf/financial-statement-2011.pdf; 2010 edition, p. 13, www.panynj.gov/corporate-information/pdf/financial-statement-2009.pdf; 2009 edition, p. 12, www.panynj.gov/corporate-information/pdf/financial-statement-2009.pdf; 2008 edition, p. 12, www.panynj.gov/corporate-information/pdf/financial-statement-2008.pdf; 2007 edition, p. 13, www.panynj.gov/corporate-information/pdf/financial-statement-2007.pdf; 2006 edition, p. 13, www.panynj.gov/corporate-information/pdf/financial-statement-2006.pdf; and 2005 edition, p. 11, www.panynj.gov/corporate-information/pdf/financial-statement-2005.pdf

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